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Standard Medigap plans are learning some new tricks

Medigap supplement policies have begun to change, moving away from being the plain-vanilla member of the Medicare family. Increasingly, these private insurance policies are likely to cover health-club memberships and perhaps also set up health care provider networks to save money for themselves and their policyholders.

In doing so, the plans are emulating the moves of private Medicare Advantage (MA) plans. Such plans legally must cover everything provided by basic Medicare but usually feature additional benefits. Given that the same insurers dominate MA and Medigap markets, this development is not surprising.

First, some background. More than 12 million people had Medigap policies in 2015, representing 22 percent of the more than 55 million Medicare enrollees, according to the American Association for Medicare Supplement Insurance.

However, a much higher percentage of people using traditional Medicare have Medigap plans. That’s because about a third of Medicare enrollees have MA plans, which provide their own supplemental coverage and whose enrollees aren’t permitted to buy Medigap plans. Also, nearly 10 million low-income Medicare enrollees also qualify for Medicaid, and are not able to afford Medigap premiums. By my rough calculations, this means that 40 to 50 percent of basic Medicare enrollees purchase Medigap plans to help cover things that basic Medicare does not fully pay.

READ MORE: How do I get the Medicare coverage I want with the lowest out-of-pocket cost?

If you need a primer of what these are, check out page 11 of Medicare’s annual Medigap guide, which also includes other helpful background. In brief, these plans offer different levels of protection and carry individual letter designations – Plan A, B, C, D, regular F, high-deductible F, G, K, L, M, and N. Two-thirds of all outstanding Medigap plans are Plan F, according to the Medicare supplement trade association, followed by N (12 percent). D and G (each 9 percent), and C (4 percent). For reasons I’ve explained before, Plan G sales are booming, while the appeal of Plan F is declining.

Although benefits differ among these letter plans, every Plan A sold by private insurers must cover the same set of proscribed minimum benefits. As must every Plan B, every Plan C, and so forth. Insurers are free to charge different premiums for their plans, and wide cost variations exist. Because benefits have been identical within the same-lettered plans, price shopping is the major and usually only factor that should guide consumer selection.

However, this uniformity is changing, meaning that not all same-letter plans offer the same features. For example, I am now the happy owner of a Medigap plan that includes a steep price discount on health-club memberships offered by clubs that participate in the popular Silver Sneakers program. I was surprised that this feature was available, and so was an experienced Medigap broker who helps keep me up to date on Medigap developments. But more than one Medigap insurer confirmed to me that they now offer these plans in some of their letter plans.

So, if you are considering a certain Medigap letter plan, don’t assume that all such plans will offer the same features.

In another development, an unnamed Medigap insurer has just received a Medicare ruling that could lead to it offering policies that include a proprietary network of participating hospitals. These hospitals would agree to waive Medicare’s Part A deductible to plan members using the hospital. This deductible is $1,316 this year, and is fully covered by all popular Medigap plans.

Consumers with popular Medigap plans are already protected from paying the hospital deductible, so they wouldn’t see these savings directly. It’s the insurer who would benefit. In turn, it would provide members using such hospitals a $100 reduction in future premiums. The broader savings could, however, be considered by state regulators in setting future premiums for the insurer’s Medigap plans. (Medigap plans are regulated by the states, not Medicare.)

Providing discounted services is something that can run afoul of Medicare’s anti-kickback laws, which frown upon unfairly tilting the use of medical services to providers offering price breaks to health insurers. The insurer sought and received an assurance from Medicare that its plan would not trigger such sanctions.

Medicare’s thinking is that Medigap policyholders receive no direct price breaks because they don’t pay the Part A deductible. The insurer, whose identity was redacted in the Medicare advisory opinion, set up the system so that consumers are free to use any hospital. If they use a non-network hospital, the insurer will pay the full amount of the Part A deductible. Likewise, the insurer said its network was open to any hospital accepting Medicare. This avoided charges that the insurer was unfairly driving business only to hospitals in its network.

Saving money through the use of health provider networks is an enormously important trend for Medicare enrollees, and a key element of the movement toward managed care that is appearing in all types of health care. How much of those savings flows to consumers as opposed to health insurers is a big wild card. So is the quality of care available in a controlled network that might not offer consumers the choice they’d prefer in medical providers.

Having received this ruling, there is no guarantee about whether or when the insurer will begin offering such plans. For now, my message to Medigap policyholders is much less cosmic: ask what your plan covers and how its features differ from other similar plans.

This week’s questions and answers

Jon – Ind.: I have been disabled for several years and on Medicare, and recently had to repair my wheelchair. I have gone to almost every durable medical equipment (DMW) outlet in Indianapolis. None of them will even help me order parts or cover. When I ask them if Medicare would cover a new wheelchair, all I get is a huge NO. This is the only chair that has worked for me. Just because I’m disabled doesn’t mean I do not want to be as active as possible.

Phil Moeller: I’m sorry you’ve had such a hard time. I don’t pretend to understand all the details of wheelchair standards, Medicare rules, and the craziness of DME suppliers. But I agree that the system often seems to deny the best long-term solution in the interest of saving a few bucks today.

I don’t know what kind of Medicare you have. If it’s only Parts A and B, then your claims are not handled by an insurance company but by the Medicare administrative contractor (MAC) who oversees the part of the country where you live. These businesses are hired by Medicare to handle claims, with their approval and denial process based on Medicare coverage rules.

READ MORE: Medicare’s lack of dental, hearing and vision coverage can put seniors in a bind

The A-B MAC for Indiana is the Wisconsin Physicians Service Insurance Corporation. There also is a MAC for durable medical equipment. In Indiana, that MAC is CGS Administrators, LLC,.

In my experience, the actual DME suppliers are not really the decision makers here, but are only following what they’re told by the MACs. The MACs, in turn, usually point to the Centers for Medicare & Medicaid Services (CMS) in Washington as the final decision-maker. This often appears to be an effort to pass the buck, as neither the MACs or CMS can be easily held accountable by consumers.

I don’t know if you’ve been turned down for this coverage by the MAC where you live. I also don’t know if your physician(s) have prescribed this particular wheelchair as medically necessary. If you have committed doctors on your side, they can make a big difference in reversing Medicare coverage denials.

There are two Medicare nonprofits I deal with that might be willing to help you with your claim. I should warn you that they are overwhelmed with consumer demand, but perhaps they have encountered your type of problem before and can give you good advice. They are the Medicare Rights Center and the Center for Medicare Advocacy.

Please let me know how things go. I wish you the best of luck, and admire your efforts to overcome the challenges caused by your disability.

Vickie – Ore.: I am worried about Social Security running out of money. Even though it might be best to collect at full retirement age or, ideally, 70, do you think a person should consider collecting at 62 to make sure they receive least some benefits? Where can I get honest advice on what to do?

Phil Moeller: I certainly am concerned about Social Security’s financial viability. But I see no upside to filing early for fear that future benefits might disappear.

First, I have seen no proposals to change the rules that would reward early filing. Second, even if Congress does nothing, benefits can be paid in full until the year 2034. After that, they would still be paid at the rate of 77 cents to the dollar, and I’d much prefer to get 77 percent of a larger number by waiting to file.

On the advice front, my co-author Larry Kotlikoff and I continue to write about Social Security, so I would immodestly suggest you can follow our articles.

The National Committee to Protect Social Security and Medicare is a good place to track threats to future benefits. Many of these threats will never become legislation, let alone be enacted. But this group is a good “canary in the coal mine” about attacks on Social Security.

READ MORE: Social Security trust fund will be depleted in 17 years, according to trustees report

From a financial perspective, the Committee for a Responsible Federal Budget serves a similar “alarm” function about the need to rein in federal deficits. From this perspective, you will see a lot of content about how Social Security deficits need to be reduced, often by reducing benefits.

The truth, of course, lies somewhere in the middle. Good luck finding it!

Kathy – Utah: I turn 65 next year, but will be working full time and not collecting Social Security until I turn 66 in 2019. My health insurance at work has now gone to a $4,000 annual deductible. What do you think about the idea of me dropping my employer plan and signing up for Medicare instead?

Phil Moeller: It is certainly worthwhile to run the comparative numbers and see. I used to routinely advise people to keep their employer plans when they became eligible for Medicare. But the rise in high deductible plans has changed my thinking.

If you do leave your employer plan, you should be aware that the plan may not have to take you back if you later change your mind.

Beyond getting Part B of Medicare and a Part D drug plan, Medigap supplemental policies can be expensive for someone with modest health expenses. But all it takes is one medical emergency to generate hundreds of thousands of dollars in medical expenses. Among other things, Medigap covers the 20 percent of Part B expenses that Medicare does not pay.

You also should look at available Medicare Advantage policies. These plans must cover everything that basic Medicare covers, and also usually include a Part D drug plan. Lastly, they also have protection against catastrophic out-of-pocket health costs, and thus do not require a Medigap plan. These plans usually require you to use only the doctors and hospitals in the plan’s provider network, so you need to make sure you can live with such restrictions.

While you are healthy now, I advise people to keep in mind that they are buying insurance for their “future” self and not their present self. You clearly are a planner. Congratulations on being part of a club that is much too small. As a planner, I suggest you use Medicare’s Plan Finder to compare different Medicare plans, including Medigap plans.

Alice: I am signing up for Medicare Part D for the first time. Presently, I only take a low-cost blood pressure medication. While I am in relatively good health, I have heard horror stories about how friends have found out that they have cancer and, during open enrollment, were denied coverage in a better part D plan that would cover more of their medications. Is it better to buy the best plan that I can afford, or go with the plan that is low cost and no deductible?

Phil Moeller: I don’t know exactly what happened in the horror stories you’ve heard, but they don’t sound accurate to me. A person has the right during open enrollment – which begins every year on Oct. 15 and extends through Dec. 7 — to switch to a different Part D plan. They cannot be denied coverage due to a pre-existing condition.

For this reason, your worst-case Part D situation would be if you needed expensive drugs early in the calendar year, and had to wait to shift plans until the first of the next year, which would be the effective date of any new plan you’d find during open enrollment in the fall. You thus would be exposed to your plan’s maximum out-of-pocket spending rules, plus you’d be on the hook for 5 percent of your drug costs even after reaching the so-called catastrophic level of the plan’s coverage zones.

The difference in premiums between a bare-bones and deluxe Part D plan is not that great. Were it me, I’d opt for the better plan, shell out a few hundred “extra” dollars in annual premiums, and sleep well at night.

Deanna: I’m 64 and currently receiving Social Security survivor benefits. Social Security is holding back approximately half of my benefits because I am working full time. Will I ever get back the money that they’re holding back? I’ve read somewhere that my benefit will increase when I turn 66.

Phil Moeller: If you continue receiving survivor benefits after you retire, you should see your current benefit reductions repaid to you in the form of higher monthly benefits. However, were you to switch to another type of benefit, say your own retirement benefit, this adjustment would disappear. Presumably, your retirement benefit would be larger than your survivor benefit, or else you’d have no reason to switch to it. But you should be aware of this limitation to repayment of benefits affected by Social Security’s earnings test.

Michele: I took early Social Security at age 62 as a divorcee on my own record. My ex continues to work and he is now 84; neither of us have remarried. When he dies (none of us can get out of this life alive, you know!), and if I survive him, can I collect benefits on his then-current record and his then-current rate? Or, will that benefit be reduced due to the fact that I took early retirement?

Phil Moeller: You will receive the full amount of what your ex-spouse was receiving at the time of his death. It will not be reduced because you took early retirement.

In addition, if your former husband filed early for his own retirement benefits, there is a chance your survivor benefit would be higher than what he received. In this situation, you would get the higher of either what your ex was receiving or 82.5 percent of the benefit he would have received at his full retirement age. If you have access to his Social Security earnings records, you can get a good idea of whether this rule might apply to you.